Category Archives: Intermediate Macroeconomic Theory and Policy

ECON 305 Discussion 6

This week the text readings include a discussion of inflation.  While you are already familiar with the basics of inflation, do read the text with care as it gives you useful fuller detail on the relationships between money supply, monetary policy and inflation.

But at the moment, the world isn’t facing any meaningful inflationary pressure.  But there are numerous signs of potential deflation.  And that has several central banks nervous.

However, we rarely discuss deflation in economics courses.  The last time it happened in the US was during the Great Depression.  Japan  deal with deflation during the 1990s and off and on since then.  China has come close, but central bank actions seem to have prevented.  And now the Euro Zone is facing possible deflation to which the European Central Bank has finally started to respond.

This week explore the causes of deflation, why it is considered to have negative consequences for an economy and how can it be prevented or stopped once started. Is there a linkage between inflation and deflation?

Do respond to all of these parts so as to provide a complete picture.

You are expected to make your own contribution in a main topic as well as respond with value added comments to at least two of your classmates as well as to your instructor.

Below are some recent articles from the Economist which should be helpful.  You will, of course, want to do additional research.

The Dangers of Deflation

The Euro Zone Slides Towards Deflation